• APAC stocks were mostly lower following the choppy performance on Wall Street as markets digested sticky US inflation data and subsequent Fed commentary.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.2% after the cash market closed up 0.1% yesterday.
• DXY is a touch firmer and on a 103 handle, EUR/USD and GBP/USD are on 1.07 and 1.21 handles, antipodeans lag
• Crude futures trickled lower with headwinds from the risk aversion and bearish inventory data.
• Looking ahead, highlights include UK CPI, EZ Industrial Production, US Retail Sales, NY Fed Manufacturing, Industrial Production & Japanese Trade Balance, Speech from ECB's Lagarde, IEA OMR, Supply from Germany & US
• Earnings from Heineken, Kering, Ahold Delhaize, Barclays, Hargreaves Lansdown, Glencore, Cisco, Biogen, Analog Devices, Marathon Oil & Shopify.

US TRADE

EQUITIES

• US stocks finished mixed as participants digested the US CPI data and a plethora of Fed speak that followed. The CPI report printed in line M/M but the Y/Y figures were firmer than expected and resulted in two-way trade, while there was optimism around the Fed-eyed core services ex. shelter pricing.
• SPX -0.03% at 4,136, NDX +0.71% at 12,590, DJI -0.46% at 34,089, RUT -0.06% at 1,939.
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Williams (voter) said the Fed still has a ways to go to control inflation levels and that current levels of inflation remain far too high, while he added that recent data supports the case for more rate hikes. Fed's Williams also stated that the outlook for year-end Federal Funds rate of between 5.00-5.50% looks reasonable and there is a risk the Fed may need to raise rates higher than currently expected. Furthermore, he said restrictive rates will be needed for some time to cool inflation and there is a risk that inflation stays higher than expected but also noted it is possible that the Fed cuts rates in 2024 and 2025 to reflect lower inflation.
• Fed's Harker (voter) expects the policy rate to be restrictive enough to hold rates in place at some point this year and said the Fed is not done yet but is likely close. Harker added how much above 5% they need to go to depends on incoming data and that the inflation report shows inflation is not moving down quickly, while he thinks they need to continue above 5% in 25bps increments for a while.
• WSJ Timiraos noted that the inflation report keeps the Fed on track to continue rate hikes and officials are concerned tight labour markets will keep upward pressure on wages and prices.
• US President Biden named Fed's Brainard as top economic adviser and Jared Bernstein as Chief White House Economist, as expected, while the Fed announced that Vice Chair Brainard submitted her resignation effective on or about February 20th to become the NEC Director.

APAC TRADE

EQUITIES

• APAC stocks were mostly lower following the choppy performance on Wall Street as markets digested sticky US inflation data and the plethora of Fed commentary that ensued.
• ASX 200 declined amid underperformance in its top-weighted financials sector after results from Australia’s largest bank CBA which despite posting a record cash profit for H1, still fell short of estimates and the Co. flagged a moderation in business loan growth.
• Nikkei 225 was subdued with several of the biggest movers in Tokyo driven by earnings results.
• Hang Seng and Shanghai Comp. conformed to the downbeat mood with Hong Kong dragged lower by weakness in the property sector, although losses in the mainland were stemmed after the PBoC boosted funds through its Medium-term Lending Facility at an unchanged rate.
• US equity futures marginally weakened (ES -0.4%) as global markets reflected on the recent inflation data.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 -0.2% after the cash market closed up 0.1% yesterday.

FX

• DXY was marginally firmer amid the cautious risk tone but with gains in the dollar capped after the price swings from the mixed CPI data, while the rhetoric from Fed officials was hawkish-leaning and reaffirmed that there was more to do on rates and on controlling inflation.
• EUR/USD pulled back after the post-CPI volatility and despite comments from ECB's Makhlouf regarding more rate hikes beyond March and that the ECB could hike to above 3.5% and hold rates there.
• GBP/USD remained uninspired after having wiped out the gains from the recent employment and average earnings data, while attention now turns to the incoming UK inflation data.
• USD/JPY was choppy and swung back and forth to both sides of the 133.00 level.
• Antipodeans were subdued owing to the downbeat risk tone and commodities pressure.
• PBoC set USD/CNY mid-point at 6.8183 vs exp. 6.8196 (prev. 6.8136)

FIXED INCOME

• 10yr UST futures attempted to nurse some of the losses from the prior day’s bear flattening but with the recovery contained in the aftermath of the sticky US CPI data and hawkish-leaning Fed rhetoric.
• Bund futures traded sideways after having recently rebounded from a monthly low.
• 10yr JGB futures were just about kept afloat amid the BoJ’s presence in the market for JPY 1.6tln of JGBs on top of its daily fixed-rate buying operations.

COMMODITIES

• Crude futures trickled lower with headwinds from the risk aversion and bearish inventory data.
• US Energy Inventory Data (bbls): Crude +10.5mln (exp. +1.1mln), Cushing +2mln, Gasoline +0.8mln (exp. +1.5mln), Distillate +1.7mln (exp. +0.4mln).
• Spot gold was marginally pressured by a firmer dollar and after the post-CPI swings.
• Copper futures were subdued alongside the cautious mood across the Asia-Pac region.

CRYPTO

• Bitcoin slightly pulled back after yesterday's gains but remained above the 22,000 level.

NOTABLE ASIA-PAC HEADLINES

• PBoC conducted CNY 499bln of 1-year MLF (vs CNY 300bln maturing) with rate kept at 2.75%.
• RBA Governor Lowe said the current monetary policy stance is restrictive and inflation is way too high which needs to come down, while he noted risks are two-sided and that there is the risk they have not yet done enough on interest rates. Furthermore, Lowe said Q4 inflation result showed strong domestic demand and they are seeing some early evidence that demand is moderating but also noted rates have not yet peaked and he is still unsure how far rates have to go.

GEOPOLITICS

• US forces shot down an Iranian-made drone in Syria, according to the US military cited by Reuters.
• Chinese President Xi vowed to step up trade and investment cooperation with Iran and constructively participate in efforts to revive its nuclear deal, according to FT.
• Japan is considering expanding the use of weapons against intrusion into its airspace after it recently noted that it strongly suspects past intrusions of Chinese surveillance balloons, according to Kyodo. Furthermore, Japanese Chief Cabinet Secretary Matsuno said they told China that airspace violation by unmanned surveillance balloons is absolutely unacceptable.

EU/UK

• UK PM Sunak is to meet EU leaders to try to finalise a deal as the UK and Brussels edge towards a compromise to overhaul Northern Ireland’s trading arrangements, according to FT.
• UK PM Sunak is exploring a public sector pay deal that backdates wage offer, according to FT
• ECB's Makhlouf said he will not predict when the hiking cycle will end but added that he sees more rate hikes beyond March.